China not profitable for most US companies

By Cao Changqing 曹長青

Now that the local government elections are over, it is time to turn our attention to the cross-strait trade situation.

If the soon to be convened Economic Development Advisory Conference decides to further relax government policy on cross-strait trade, this is likely to lead to a massive outflow of money from Taiwan and increase the risk of Beijing using commercial means to force Taiwan into accepting "one country, two systems."

In the US, people have been calling for a reassessment of the trade relationship with China as Beijing's unconventional trade practices have hurt the US economy. This year, the US's trade deficit with China will reach a record high of US$200 billion.

The respected business consultant Ethan Gutmann in his book Losing the New China has a number of important observations which are helpful responses to these problems.

Gutmann worked in China for many years and was involved in television production, and also served as a business consultant. He rapidly made his way into the expatriate community of US entrepreneurs in China and was even deputy chairman of the government liaison committee of the American Chamber of Commerce. As a result, he obtained a deep insight into the operation of foreign businesses in China and the corruption within the country. This information is known to many China experts and businesspeople, but they remain silent to avoid offending their hosts. Gutmann is unusual in that he has had the courage to write a truthful account, and his four conclusions are worth repeating:

First, most US companies in China have not made money. Gutmann says that under a third would be able to show quarterly profits, and if you factor in their initial investment, perhaps only 5 percent have really turned a profit.

Second, Gutmann says the China market is a black hole into which money sinks without trace. This is because it is not a normal society, but rather a place where lying officials, a rigid and harsh bureaucracy and rampant piracy rule.

Third, Gutmann said that if foreign companies want to succeed in China, they must adopt one of three measures. One is to be led by the Chinese Communist Party, in the manner of Laurence Brahm, who owes his success to toeing the party line in innumerable articles that read as though they were from the People's Daily. Another is through bribery of high officials and the third is flattery. An example of this is the behavior of Cisco Systems, who provided China with firewall technologies to control the Internet, even going so far as to sell this technology at half the price. Another example is Yahoo, whose search engine in China will reject terms such as "Taiwan independence," and "Falun Gong."

Fourth, Gutmann claims that many US companies in China falsify their accounts to their parent companies to show a profit. They organize vanity trips in which US executives can hobnob with high-level Chinese officials.

Gutmann describes the debauchery that is commonplace among the foreign business community, including sexual orgies and drug taking. He says that China offers three sources of attraction: economic, cultural and sexual, suggesting that local woman fall over themselves to fulfill the sexual demands of well-heeled foreign executives. In today's China, where sexual liberation has joined hands with economic reform, most young people have thrown themselves into the reform movement. Unfortunately, this reformist zeal mostly takes place below the waist.